bill cordingley head, food & agribusiness research and advisory americas march 2010 global...

Bill CordingleyHead, Food & Agribusiness Research and AdvisoryAmericas

March 2010

Global Recession – the impact on Agriculture

Rabobank International

For the love of farming!


Rabobank International3

• Subsidiary of Rabobank Group – Cooperative bank based in the Netherlands

• Present in 43 countries worldwide with 1,508 offices

• Over 60,000 staff serving over 9,000,000 clients

• Ranked 4th safest bank in the worldGlobal Finance, September 2008

• AAA ratedStandard & Poor’s, Moody’s, since 1981Dominion Bond Rating Service, since 2001

• Best Investment Bank in the NetherlandsJuly 2008

• Total assets of EUR 570.5 billion Rabobank, December 2007

• Net profit of EUR 2.7 billion Rabobank, December 2007


Utrecht (Global HQ)

Mumbai

Sydney

Mexico City

São Paulo

New York BeijingShanghai

Hong Kong

Singapore

New Delhi

Jakarta

ChristchurchMelbourne

The global Food and Agribusiness Research (FAR) group has 80 members in 13 countries

Kuala Lumpur

Buenos Aires

Santiago


The GFC and global recession


• The deepest economic contraction in the last 50 years, and not just in the U.S. - The great recession!

• The worst financial and banking crisis since the Great Depression of the 1930’s

• Large and growing US deficit

• Lack of liquidity in the financial system and rapid deleveraging adding to the credit crisis

• Millions of insolvent individuals (foreclosures)

• Contraction in consumption and consumer confidence at lowest levels since they started measuring

• Doubling in unemployment

• Fear and uncertainty prevail!

What the crisis looked like


The Credit Crunch


Rabobank InternationalFood & Agribusiness Research and Advisory

CONFI DENCIAL

The financial market has been severely impacted: credit write-downs are almost USD 1.1 trillion so far -IMF predicts losses of USD 2.2 trillion

Source: Bloomberg, 10th 2009

Morgan Stanley

RBS

Deutsche Bank Credit

Agricole

Societe Generale

Barclays

BNP Paribas Unicredit

UBS

Goldman Sachs

Santander

Citigroup

JP Morgan

HSBC

Credit Suisse

49

120

7667

8091

10893

116

75100

116

255

165

215

16 4.6 10.317

267.4

32.5 26 35

27 35 64 19 85 97

Value Jan. 20, 2009

Value 2Q 2007

Change in market value (USD billion) of selected banks


Income and population growth are key drivers of increased food consumption

GDP growth (2008)

CA

GR

pop

ulat

ion

(06-

11)

Income and population growth in selected countries

BRICcountries

…2009 retraction…

GDP growth (2009)

CA

GR

pop

ulat

ion

(06-

11)



CHINDIA the savior in 2009

…2010 …a rebound – but risks to the downside!

GDP growth (2010)

CA

GR

pop

ulat

ion

(06-

11)


Source: UN, IMF, Rabobank, 2010Rabobank International

U.S. Growth still an important driver for global economy

US Economy 25% of global GDP

71% of GDP private consumption

5.7% for 4Q09 Boom in Q4 GDP driven by stimulus and inventory cycle

Growth expected to fall back in Q2-4


Rabobank thinks we are in for a funny shaped recovery!

• Traditional talk of recovery usually a letter of the alphabet...− V, W, L, U...

• But what if it’s a mathematical symbol instead?− Square root− Lack of a long-term growth driver− Jobless recovery

13 Rabobank International

US Consumer shell shocked!


Worst unemployment since early 1980’s

• Over 7 million US jobs lost in this recession


10.8% 9.7%

Consumer wealth battered!



Very difficult busting of the credit bubble has seen mortgage debt growth flat line!


• A quarter of U.S. homeowners with mortgages have negative equity in their homes.

• Another quarter have <10% equity• No easy way out of this soon for home owners or the building industry

There has been a significant change in consumer mindset!


Major roadblock for consumption and thus demand through the value chain!


• CPI -0.4% in 2009: first full-year decline since 1955

Foodservice Quarterly sales, Q3 09 v Q4 08


Impact on global Agriculture


Primary Production

• Strong profits and land values buffered the sector initially

• Pressure on farm gate prices for most commodities

• High input costs made 2009 a write off for many producers

• Credit from banks available but more stringent

• Softening demand

• Increasing FX volatility

• Trade finance availability tightened, especially for riskier destinations and counterparties

• First contraction in global trade since WWII

• Excess processing, shipping capacity

• Inventory deleveraging

• Fall in business confidence

• Tightening credit lines

• Running down inventories

• Hand to mouth

• Falling consumer confidence

- wealth effect

• Change in eating patterns

- trading out- trading down

Crisis felt throughout the agribusiness supply chain

Processing/ Trade

Retail/Food Service Consumers


Aggregate impact in the US significant but far from catastrophic


• US net farm income down by $30 billion in 2009• Set to recover by $7 billion in 2010• Just $1.4 b below 10 yr average

Lower production costs in 2010, but still historically high

• Crop production costs fell 6-14% in 2009, expected flat in 2010 - 2011 • Still about 30-40% higher than 1999-2009 average.


Relief due to fuel and fertilizer price declines


Divergent fortunes for two big drivers – livestock and crops


Market volatility has receded; but still remains historically elevated

CBOT Corn Volatility, 2000-2009 CBOT Soybean Volatility, 2000-2009

10

20

30

40

50

60

70

100

200

300

400

500

600

700

800

J an 00 J an 01 J an 02 J an 03 J an 04 J an 05 J an 06 J an 07 J an 08 J an 09

% V

ola

tili

ty

US

¢ /

bu

shel

CBOT Corn Price 30 Day Hist. Volatility Long-term Avg. Volatility

10

15

20

25

30

35

40

45

50

55

60

100

300

500

700

900

1100

1300

1500

1700

1900

J an 00 J an 01 J an 02 J an 03 J an 04 J an 05 J an 06 J an 07 J an 08 J an 09

% V

ola

tili

ty

US

¢ /

bu

sh

el

CBOT Soybean Price 60 Day Hist. Volatility Long-term Avg. Volatility


Farmers on average have strong equity and are reasonably well positioned to weather the downturn

• However those that have used debt to build scale without achieving rapid productivity growth in recent years are facing an uncertain future with returns unlikely to rebound quickly and uncertain lenders much tougher on covenants going forward!


Conclusions

• Agriculture not a bad place to be in the GFC – in relative terms• 2010 will see a slow and unsteady recovery in the global

economy which will be tested by mid year as govt stimulus wears off, inventory cycle recedes and unemployment growth lags!

• Moderating costs will help both crops, meat and other sectors improve returns despite the soft demand environment in 2010

• Volatility a factor for all farmers going forward – possibly new ways to look at risk in the supply chain will be necessary – partnership v’s adversarial??

• Crystal ball is cloudy for everyone – only answer is to is to eliminate catastrophic risk, remain flexible, eliminate unnecessary costs and enhance productivity consistently and diligently


The World’s Leading Specialist Food and Agribusiness Bank

Thank you


bill cordingley head, food & agribusiness research and advisory americas march 2010 global...

Documents

rabobank international

population growth

global gdp

retraction gdp growth

cagr population

global food

inventory cycle growth

selected countries source